Viral Genetics Has Made Great Progress in 2011 - Analyst Blog

Viral Genetics Has Made Great Progress in 2011

Grant Zeng, CFA

During 2011, under the leadership of its CEO Haig Keledjian, Viral Genetics (VRAL) has made great progress in terms of business development, financing and clinical advancement. Below are summary of key achievements:

Viral Genetics Settled Litigation and Reacquired African Rights for HIV/AIDS Products

In January 2011, Viral Genetics entered into a binding Release and Settlement Agreement with Timothy and Thomas LLC (T&T) and its principals that was approved by the court. The Settlement ends the almost 5-year-old lawsuit between the parties originally initiated in March 2006, dismissing all claims without admission of liability by any party. Separately, the Company has also paid or settled all legal fees incurred as a result of this litigation during the last several years.

As part of the Settlement the Company terminated the Distribution Management Agreement (DMA) with T&T that was the subject of the lawsuit, effectively reacquiring the rights to develop and market HIV/AIDS products in Africa that had previously been granted to T&T for a period of twenty years. In consideration for the DMA's termination, the Company agreed to pay to T&T over the course of three years and pursuant to a Convertible Debenture a total of $1,900,000 as follows: $1,000,000 by November 1, 2011; $450,000 by November 1, 2012; and $450,000 by November 1, 2013. Under the Debenture and subject to certain terms and conditions, at the Company's option it can elect to make these installment payments in cash or in shares of common stock.

The Company's HIV/AIDS technology and intellectual property portfolio have grown considerably in these last five years. As a result, the Company is now free to pursue possible partnerships and joint ventures at a much higher level that better reflect the value of the work.

With this arduous and time-consuming process behind, Viral Genetics is now completely free to focus on the development of drug candidates and new VG Energy subsidiary.

$1.5 Million Grant Received to Fund Clinical Trials

In January 2011, Scott & White Healthcare in Temple, Texas received an anonymous gift of $1.5 million that will go toward cancer cell research led by M. Karen Newell Rogers, Ph.D., director of the Center for Cell Death and Differentiation at Scott & White and Texas A&M Health Science Center, and lead scientist at Viral Genetics.

This generous gift will further the advancement of critical cancer research, bridging the gap between research and the delivery of new therapies. Dr. M. Karen Newell Rogers will serve as principle research investigator on the proposed research. She will design and oversee experiments and interpret the results of the research plan described for the proposed work.

In addition, the funding will be used to support clinical work.

Viral Genetics' Researcher and Advisor Shared Award.

In February 2011, Viral Genetics lead researcher Dr. M. Karen Newell Rogers and Advisor Mr. Richard Gerstner received the Lauren F. Brooks Hope Award, presented by Time for Lyme, Inc.

Dr. Newell Rogers is being recognized for her research on Targeted Peptide treatment for Lyme Disease at the University of Colorado at Colorado Springs and Texas A&M University. Mr. Gerstner helped Dr. Newell Rogers to initiate research on a treatment for the disease and has supported her research with funding.

M. Karen Newell Rogers, Ph.D., is currently the Raleigh R. White Jr. Endowed Professor of Surgical Research at Scott and White Hospital's Department of Surgery, affiliated with Texas A&M University Health Science Center's College of Medicine, located in Temple, Texas. She was previously at the University of Colorado at Colorado Springs, where she began her research into Lyme Disease.

Richard T. Gerstner serves on the Advisory Board of Viral Genetics and is also on the Advisory Committee to Columbia University's Lyme and Tick Borne Diseases Research Center. He has served in executive management in numerous technology companies, including IBM and Telular Corporation.

Viral Generics Reported Pipeline Progress

On August 3, 2011, Viral Genetics held a first corporate presentation via webcast. During the webcast, the Company's CEO Mr. Haig Keledjian reviewed recent and ongoing developments at Viral Genetics and VG Energy. This webcast is also one of the moves the Company is taking to enhance shareholder communications.

According to Mr. Haig, Viral Genetics has made fundamental advancements implementing the Company's strategic plan in the past six months. Our key takeaways from the webcast include:

HIV/AIDS Program: In early 2011, the Company received feedback from the US FDA on its pre-IND for its HIV/AIDS drug program, APi1177 (VGV-X), asking for more in vitro and animal safety and toxicity studies. Currently, the Company is updating the final protocol and will submit it to FDA within 30 to 60 days. Furthermore, the Company is now completing the securing of a long-term manufacturing relationship for its clinical-grade drug (GLP and GMP). If the IND were approved, the clinical trial would be a Phase I study and require 9-12 months to conduct including preparation, recruitment of study centers, contracting service providers, enrollment of patients, treatment, follow up, and statistical evaluation.

Lyme Disease Program: The Company is in the process of completing its pre-IND for the Lyme Disease drug program. A clinical investigator is now being recruited who will assist in completing the clinical design aspects of the pre-IND.

Drug-Resistant Cancer Program: The investigator study of the Company's Metabolic Disruption ( MDT ) compounds for treatment of drug-resistant cancers at Scott and White Hospital is undergoing Institutional Review Board review. The Company expects that this study will commence soon, with approximately 12 months of follow up. The study was funded by an anonymous grant of $1.5 million to Scott and White, specifically directed to the study.

VG Energy - Industrial Scale Testing: Viral Genetics' majority-owned subsidiary, VG Energy, successfully completed the first phase of an independent industrial-scale demonstration of MDT lipid-enhancing compounds, which resulted in significantly increased yields of oils from algae. The second phase of this testing is dose response analysis, which examines whether manipulation of different quantities of MDT compounds can further enhance yields. Once this portion of testing is complete, it will be followed by industrial scale testing in a closed bioreactor algae-cultivation environment. Final results of this testing are expected within 2-3 months.

VG Energy - Other Testing: VG Energy is also completing testing of MDT compounds on various additional strains of algae and different processes. These tests include algae used in open pond or raceways (a circular configuration for moving nutrients and water through the algal growth pools); "reversing" the lipid-enhancing properties of MDT to increase glucose rather than oils, which reduces the steps needed to convert the algal product to a usable fuel; and testing MDT compounds on yeast used for production of omega-3 fatty acids.

VG Energy - Partnering Efforts: VG Energy is actively engaged in exploring strategic partnerships and business relationships including, but not limited to, licensing or collaborative research relationships with leading firms and academic institutions for the purpose of achieving commercialization and/or developing new applications of MDT compounds in energy, food, cosmetics and nutriceuticals.

Intellectual Properties Has Been Strengthened

In November, 2011, Viral Genetics announced that a patent under which it is exclusively licensed will be granted for using a compound known as DCA to treat cancer. DCA (dichloroacetic acid) has emerged as a compound that accelerates the destruction of tumors without the deleterious and debilitating side effects associated with chemotherapy or radiation. This is the first patent granted for the use of DCA to treat cancer, and represents a significant milestone in the Company's growth.

Since filing the application, other companies and research entities, both in the US and internationally, have also done much work to validate and unlock the value inherent in utilizing DCA as a therapeutic agent. Over the last four years, extensive validating research has been performed that documents DCA as a potentially powerful cancer treatment. Dr. Newell Rogers is one of the scientific pioneers suggesting that agents, including DCA, that disrupt tumor specific metabolic pathways, will have value as novel cancer drugs and, as such, she is the first researcher to have a patent granted on its use in the battle against cancer.

Viral Genetics has been strategically accumulating a significant and valuable portfolio of intellectual property rights around Dr. Newell's core metabolic disruption science. This patent, and many others that will be granted, are expected to continue to create value for the Company's shareholders. In concert with our legal team, Viral Genetics is setting in place the licensing and revenue strategy for the Company from this IP portfolio.

The Implications

We think VG is moving in the right direction.

Although the HIV/AIDS clinical program is a little delayed as originally planned, the commencement of the Phase I clinical study is likely to happen in 1Q12 when the Company continues to make progress in in vitro and additional animal studies.

Other drug programs such as Lyme disease and Cancer programs are also advance as planned.

At the front of biofuel business, the Company is also making progress in its industrial scale testing. The Company has successfully completed the first phase of an independent industrial-scale demonstration of MDT lipid-enhancing compounds. The second phase of this testing of dose response analysis is ongoing, which will be followed by industrial scale testing in a closed bioreactor algae-cultivation environment.

With all these achievements in 2011, Viral Genetics is poised to deliver more in 2012.

We maintain our Neutral rating on Viral Genetics.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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